GENERAL22 Sept 2026
RBI says MTM value on OTC derivative novation must be exchanged upfront
The RBI has clarified how novation of over-the-counter (OTC) derivative contracts works. Mark-to-market value must now be exchanged upfront. If a central counterparty has already accepted a contract for settlement, any later novation will follow the revised directions. Novation done by a central counterparty purely for settling such a contract is left out of these directions. So check your derivative agreements closely.
Key Statutory Highlights
- The RBI says the mark-to-market value on novation of an OTC derivative contract must be exchanged upfront.
- Any novation after an OTC derivative contract has been accepted for settlement by a central counterparty will follow the revised directions.
- Novation undertaken by a central counterparty for the purpose of settling an OTC derivative contract is not covered by these directions.
Actionable Advice for Taxpayers / Founders:If your business deals in OTC derivatives, review your novation terms with your counterparty and legal advisor, and check whether the upfront mark-to-market exchange applies to your contracts, since the RBI directions may affect how you settle them.
Statutory Disclaimer: TaxQue Shorts are AI-assisted editorial briefs for compliance awareness. This brief has not passed every source check; confirm the original notification before acting. This does not constitute formal legal or CA counsel.
TaxQue News Desk
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